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Drivers take advantage of nearshoring opportunities in Mexico

An employe in a red jumper stands proudly infrom of a new manufacturing plant.
10 Mar 2014

Electric motor manufacturer Advanced Motors & Drivers is moving about 60 percent of its manufacturing operations to Mexico within the next three to six months, according to The Syracuse Post-Standard. Some of the company's manufacturing will stay in the U.S. Office and support staff will also continue to be in the U.S. office.

The company is restructuring to take advantage of the opportunities that come from expanding to Mexico. In the words of the company, a subsidiary of Japanese firm Nidec-Kinetek, the move is "based on the need to provide service to a global customer base on six continents."

This is part of a larger trend of automakers positioning themselves in the global market through a decision to begin offshoring to Mexico. Canadian Manufacturing (CM) has also noticed this trend, citing that Mexico's annual automotive manufacturing output has increased annually by almost 6 percent over the last 20 years. CM credits this to low manufacturing costs - according to the source, manufacturing costs in Mexico are less than 20 percent what they are in the U.S. or Canada - and the huge number of trade deals.

It is likely the most important trade deal that is beneficial for American companies is the North American Free Trade Agreement (NAFTA). It offers virtually tariff-free shipping between the U.S. and Mexico. Companies can ship raw materials to Mexico, have their products built there, and then ship the newly built cars across the border into the U.S. to sell - none of which would require a tariff. Mexico has similar deals with over 40 nations, which means that automakers in Mexico have access to a huge number of potential customers, all of which they can reach without paying tariffs.

According to Carlos Gomes, Scotiabank senior economist and auto industry expert, vehicle assembly in Mexico has tripled since the introduction of NAFTA, although assembly hasn't done as well in the U.S. or Canada.

Investment is increasing dramatically
Advanced Motors & Drivers isn't the only company that is beginning to invest in Mexico. Investment has advanced considerably in the past decade. Companies not only in the U.S. but internationally are taking advantage of low wages and cheap transportation across North America and are starting projects for manufacturing in Mexico. This includes companies in Germany and Japan, according to CM.

In fact, U.S., Japanese and European automakers account for more than 60 percent of vehicles being built in Mexico.

The U.S. remains the top destination for cars built in Mexico. Over half of its cars are shipped across the border tariff-free into the U.S., where they are distributed across the country. However, shipments to countries other than the U.S. have begun growing in recent years.

BMW is beginning to built its luxury cars in Mexico
Even luxury car manufacturers are moving to build in Mexico. BMW is in talks with officials about constructing a plant for its luxury line of 1 and 3 series cars, according to CM.

Audi is also building a plant, which will cost $1.3 billion, for its luxury Q5 SUV.

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